Guidance

Offshore tax evasion: offences relating to offshore income

Find out about new criminal offences relating to offshore income, assets, activities and what your tax responsibilities are.

Overview

Section 166 Finance Act 2016 introduced 3 new criminal offences relating to offshore income, assets and activities, that started to apply from tax year 6 April 2017 to 5 April 2018 onward.

Offshore income, assets or activities means:

  • income arising from a source in a territory outside the UK
  • assets situated or held in a territory outside the UK
  • activities carried on wholly or mainly in a territory outside the UK
  • anything with the effect as if it were those income, assets or activities

The offences apply if in accordance with Section 7 and Section 8 of Taxes Management Act (TMA) 1970 you fail to declare offshore income or gains that results in tax due exceeding the current limit of £25,000.

What the offences are

It’s a criminal offence if you:

  • fail to notify HM Revenue and Customs (HMRC) of your chargeability to income tax or capital gains tax before the end of the notification period (Section 106B TMA)

  • are required to deliver a tax return and fail to do so before the end of the withdrawal period (Section 106C TMA)

  • provide a return which, at the end of the amendment period, contains an inaccuracy (Section 106D TMA)

In all cases the additional tax must exceed a threshold amount which is currently set at £25,000 and be chargeable in respect of offshore income, assets or activities.

Some terms explained

Notification period

The notification period usually ends 6 months after the end of the tax year. For example, for the tax year ended 5 April 2018 you must usually notify chargeability to HMRC by 5 October 2018.

Withdrawal period

The withdrawal period usually ends 2 years after the end of the tax year. For example, for the tax year ended 5 April 2018 the withdrawal period usually ends on 5 April 2020. On rare occasions HMRC may allow further time.

Amendment period

The amendment period usually ends on the second 31 January following the end of the tax year. If the tax return is not issued to you until after 31 October, you have three months from the date of issue to file the tax return and a further 12 months to amend the tax return.

For the tax year ended 5 April 2018 an inaccuracy must usually be corrected by 31 January 2020. For later years the deadline for correcting inaccurate tax returns will usually be the second 31 January following the end of the relevant tax year.

When it begins

The first tax year the offences apply to is 6 April 2017 to 5 April 2018. A tax year always runs from 6 April until 5 April the following year.

If you think you have a defence

You will have a defence to these criminal offences if you prove you:

  • have a reasonable excuse for failing to notify HMRC

  • have a reasonable excuse for failing to deliver the tax return

  • took reasonable care to ensure that the return was correct and complete

Where you put forward a defence of reasonable excuse or reasonable care, the courts take account of your circumstances, ability, knowledge and experience.

What can happen

A conviction for any of these offences allows the magistrates courts in England and Wales to impose a custodial sentence for up to 6 months and an unlimited fine. In Scotland and Northern Ireland a custodial sentence up to 6 months and a fine not exceeding £5,000 may be imposed.

HMRC decides whether to commence a criminal investigation in line with its criminal investigation policy.

How to put your tax affairs in order

You should notify HMRC about your offshore income and gains in writing or on your tax return. There is guidance for Self Assessment tax returns.

Anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue can use the Worldwide Disclosure Facility.

Published 16 March 2018